Can the IRS Take Your House if You Have Tax Debt?

When it comes to taxes, the rule of thumb is that the federal government does not forget. If you owe federal tax debt, you should know that the IRS will come to collect it. It will be the amount you owe plus penalties and interest. The situation can put your assets at risk of seizure. So, can the IRS take your house?

The short answer is that yes, they can. It is well within their rights to seize your house. It’s one of the many reasons to pay your tax on time and clear your dues at the earliest.

The good news is that just because the IRS can take your house doesn’t mean the agency will be in a hurry to do it. Normally, they will exhaust other avenues before pursuing this course of action. To understand it, we need to understand the classification of exempt assets.

Exempt assets

There are certain exempt or protected assets that the agency cannot seize no matter how much you have to pay in tax debt. These are assets considered necessary for your life, and that enable you to work.

These include clothing and personal effects, books and other tools necessary for education, profession or trade, furniture, provisions, and fuel, among other things. The exempt assets also include unemployment benefits, pension, and annuity payments, certain disability payments, child support, and workmen’s compensation payments, and minimum wages necessary for daily living.

Is your house an exempt asset?

No, your house is not a protected asset, unless the tax debt is $5,000 or less. But if you have other assets that you can sell to pay off your debt, you might be able to keep your house.

The agency doesn’t want you to be homeless. But if there is no other option, they might recommend you sell your home in order to pay off your debt, or they might end up seizing it if they feel it is the only way to get paid.

Do keep in mind that the agency’s generosity does not apply to any additional residences you might have, such as a vacation home or rental property. Since those are not your primary residences, the agency will have no hesitation in seizing and selling them.

What happens if the IRS seizes and sells your house?

In the unlikely event that they seize and sell your house, they will set a minimum bid based on the market value. You have ten days to challenge this.

What they receive from the sale will go to pay off your outstanding debt and any costs the agency may have incurred for the seizure and sale. If the value they receive from the sale is beyond these, you will get the difference as a refund.

How to protect your house if you have federal tax debt

If you receive a levy notice with a claim against your home, you have 30 days to request a hearing to appeal the decision. You can have the levy released in several ways.  These include paying off your tax debt another way, entering into an Installment Agreement, or negotiating another tax relief option, such as an Offer in Compromise.

If it’s an exempt property or if no prior notice was given, you can contend it as an improper issuance of the levy. You can also apply if you feel that it creates undue economic hardship or if you require the property to pay off your taxes.

If the house’s value is higher than your tax debt and the IRS feels that you will pay your debt, then they might choose to release the levy.

So, can the IRS really take your house? Yes, if your debt is more than $5,000 but mostly as a last resort. The IRS is usually willing to find other avenues of collection before they move in to seize your primary residence.

Time is running out!​

When you owe money on your federal taxes, one of the common collection actions taken is IRS tax garnishment, typically on your wages or salary. Wage garnishment can leave a person with very little money on which to live. 

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